Some of the most vulnerable Pacific nations – such as Kiribati (above) – ‘are at high risk of debt distress’ but do not qualify for relief.
Photograph: DAVID GRAY/REUTERS

A UN proposal that would see small island states offered debt relief to pay for climate change contains a “fundamentally unjust” blind spot, according to development groups.

But advocates see the idea as an innovative way to increase the money available for climate change adaptation in the most vulnerable states.

The UN Development Programme (UNDP) is working on an initiative that would see rich countries write off debt owed to them by Small Island Developing States (Sids) in exchange for the money being spent on climate change adaptation.

But development agencies are concerned the proposal conflates legitimate and illegitimate debt. Tim Gore, Oxfam’s global head of policy for food and climate change says: “They are two separate issues and just merging the two, you could argue, is one way to let developed countries off the hook.”

“It’s definitely an interesting proposal, but I think it’s fundamentally unjust,” says Alex Scrivener, a policy officer for the World Development Movement. “There’s a big difference between the climate debt accrued by rich countries as a result of their emitting CO2 over a long period of time and the often unjust debt which has been accrued by poorer countries,” he says.

Unjust debt, says Scrivener, is often “dictator debt” – money lent by rich countries to poor countries ruled by strongmen, who commonly used it to finance military ventures or vast follies. It is estimated at US$735bn and makes up almost one fifth of the total debt owed by the developing world. But the only Sids with dictator debt is Haiti, says Gail Hurley, a UNDP development finance specialist.

According to a UNDP briefing paper seen by the Guardian, average debt in Sids is 64.3% of GDP, compared to a developing world average of 34.4%. Only five (Comoros, Haiti, Sao Tome and Principe, Guinea-Bissau and Guyana) out of 39 Sids qualify for debt relief, not including the three Pacific nations considered most vulnerable – Kiribati, Tonga and Tuvalu.

But Hurley says these expenses are prohibitive for small island economies regardless of their debt or income level: “Small economies just do not have the resources because the upfront costs [of adaptation] are too great.”

According to Hurley, nature debt swaps in Central America and the Caribbean “have worked well and have helped increase expenditures in key environmental and conservation programmes”. In 2006, the US wrote off $24m of Guatemalan debt. In return, the Guatemalan government created the Maya Biosphere Reserve, which at 2.4m hectares is the largest protected area in the Maya rainforest.

However, rich countries could try to count debt swaps as part of their Official Development Assistance (ODA). “This means that unless donors increase their overall aid envelope (which typically they don’t) other developing countries can lose out in the form of less aid,” says Hurley. Debt swaps are also highly technical and generally involve small amounts of money, often making them more trouble than they are worth.

“It’s probably safer to reject this scheme,” says Scrivener. “In its current form, it’s a distraction. In fact, it’s worse than that; it’s a way for rich countries to claim: ‘Oh look, we’re doing something about this’ in the run up to COP21, without actually putting any money where their mouths are.”

Gore is more open to the idea. “We have to be cautious about setting a precedent of allowing debt relief to be counted as climate finance,” he says. “We are in this space where developed countries are trying to broaden evermore the definition of what they can and can’t count as climate finance. [Swaps] should be separate from and in addition to the public climate finance that developed countries are responsible for providing under the UNFCCC [Green Climate Fund]. If those two things were met then I think it’s a really strong proposal and the kind of innovative thinking that is really required.”

Ronald Jumeau, the Seychelles UN representative, says his country broadly agrees with the concept of debt swaps – the Seychelles is pursuing an $80m swap to finance the creation of a marine protected area, covering 30% of the country’s seas.

“Seychelles believes that climate adaption for debt swaps is more than debt relief – it’s a way of taking the narrative of victimhood and replacing it with one of dynamism, fighting for a solution for islands,” he says.

But he agreed that debt swaps should not be used to dilute the developed world’s commitment to climate finance.

“While some may suspect that developed countries are using alternative sources of funding as a way out of their commitments, they serve as a testament that even the commitment of $100bn is not enough.”

This article was corrected on 23/10/14 to reflect that almost all small island states are not subject to “dictator debt” and that this type of debt is not a part of the UNDP proposal.